**HOMEfires - Vol. 3 No. 8, June 2001**

**Q:**
What changes have been made to the methodology for calculating Section
8 income limits?

What impact will these changes have on the calculation of HOME income
limits?

**A: **The HOME income limits are calculated using the same methodology
that HUD uses for calculating the income limits for the Section
8 program, in accordance with Section 3(b)(2) of the U.S. Housing
Act of 1937, as amended. These limits are based on HUD estimates
of median family income, with adjustments based on family size.
The Department's methodology for calculating nationwide median family
income figures is described in Notice PDR-2001-01. Income limits
are calculated for metropolitan areas and non-metropolitan counties
in the United States and its territories using the Fair Market Rent
(FMR) area definitions used in the Section 8 program. The very low-income
limits have the most detailed statutory requirements, and therefore
have been used as the basis for deriving the other income limits.
"Very low-income" is defined as 50% of the median family
income for the area, subject to specified adjustments for areas
with unusually high or low incomes. The low-income limits for a
4-person household are calculated as 1.6 (i.e., 80%/50%) times the
relevant 4-person very low-income limit.

Beginning
in FY 2001 the Department is employing a new procedure for calculating
very low-income limits for its programs. This change is tied to
a corresponding change in the calculation of Fair Market Rents (FMRs).
The methodology for calculating HUD's 2001 income limits makes use
of a new procedure to identify areas with "unusually high incomes,"
which is one of the exceptions to the calculation of very low-income
limits provided in the statute. Under the new procedure, the 4-person
very low-income limit will not be reduced to below 50% of median
unless this amount exceeds the greater of either: 80% of the U.S.
median family income; or, the income needed to afford a unit renting
at 100% of the FMR if 30% of income is spent on housing.

The original very low-income cap was established when FMRs were
set at the 50th percentile. Very-low income limits were capped at
the amount it would cost a 4-person family spending 30% of its monthly
income to rent a 2-bedroom unit at 120% of the FMR. The decrease
to the 45th and then to the 40th percentile had the unintentional
effect of significantly increasing the number of areas where income
limits were reduced.

The
HOME income limits are established for low-income families, very
low-income families, and families at 60% of median income by family
size. The net effect of the change in HUD's methodology is to increase
the HOME income limits in approximately 900 counties that previously
had income limits set at less than 50% of median family income.
These now have higher income limits based on their local median
family income, and these changes also produce higher 60%t and 80%
of median income limits. This change will allow a greater number
of families to qualify as very low-income, which in turn will increase
the number of affordable housing options that they are eligible
to apply for. This includes HOME, as well as Section 8 and Low Income
Housing Tax Credit (LIHTC) projects.